The Prevetti Partnership is engaged in the purchase and management of apartment complexes. The partnership entered into an agreement with Parsnip Development Company on July 1 of the current year to purchase the Perry Apartments.
The sales agreement stated the purchase price of $5,000,000. It also provided for ‘‘other payments to seller,'' composed of a $500,000 payment for a covenant not to compete, $50,000 for the seller's management advice during the ownership transition, and a financing fee of $100,000.
In addition, the seller is to receive the first $400,000 of the rent collected by Prevetti. The purchase was completed on August 5.
Monthly rentals on the property are $90,000. Prevetti paid Parsnip the first $400,000 of rent it collected per the purchase agreement.
How much rental income does the Prevetti Partnership have for the current year? Explain.